NEW YORK, Jan. 9, 2012 /PRNewswire/ -- A new report by The McGraw-Hill Research Foundation calls for a more comprehensive approach to help adults make sound personal finance decisions. "Maximizing the effectiveness of financial training is not just a matter of better use of classrooms and better development of training materials, but also of re-envisioning what financial literacy education can be," the authors found. They concluded a series of steps by institutions, as well as individuals, must be packaged with financial education to improve consumers' spending and saving choices.

The paper, "From Financial Literacy to Financial Action," is authored by Jonathan Morduch, Professor of Public Policy and Economics at the New York University Wagner Graduate School of Public Service, and Managing Director of the Financial Access Initiative, and Barbara Kiviat, a David Bohnett Public Service Fellow at NYU Wagner and a Research Associate at the Financial Access Initiative.

The authors suggest governments, businesses and non-profits organizations focus on five areas to create more effective financial literacy programs. They are:

Knowledge: The right rules of thumb can sometimes be more helpful than detailed information received from traditional approaches to financial education, and knowing one's legal rights and the kinds of questions to ask of financial providers play an important role in good financial decisions.

Access to products: While empowering individuals is fundamental to the work of financial educators, individuals can only make good choices when they have access to desirable financial products and options, such as 401(k)s which tend not to be available for low-wage workers.

Self-awareness: Self-awareness of an individual's own challenges, for example of temptation and distraction, is a first step in making good choices (or avoiding worse ones) and following through on ideas.

Structures: Having reliable structures to implement choices and plans is the key to carrying through on financial decisions and turning knowledge into action. While people may know which course is best for them, they are often unable to follow through without a set of rules to follow. For example, a telephone call or text message from a retailer reminding consumers they have a bill due can be effective in minimizing credit card defaults.

Norms: Human beings are social creatures, and social norms often act against financial prudence. But norms can also be harnessed to promote better financial decision-making. One approach is to explicitly ask people to reveal social networks upfront and then enlist network members as a source of peer pressure or support. For example, a financial program called SmartyPig lets users share savings goals with friends and family; another, Piggy Mogo sends a text to the user's spouse every time the person moves cash into savings instead of spends it.

"To make financial education as powerful as possible, we need to focus on knowledge that is made up of more than just financial facts. Knowing basic rules of thumb and being aware of legal rights and recourses matter too," the authors write. "Beyond that, practitioners of financial literacy education must broaden their worldview to take into account the extent to which individuals possess self-awareness, feel support from broader social norms, can access reliable financial products, and have available workable structures to implement ideas."

A copy of From Financial Literacy to Financial Action - A White Paper on Financial Literacy is available for download here.

A video about the report by co-author Jonathan Morduch can be seen here.

About The McGraw-Hill Research Foundation:
The Foundation was established with the support of The McGraw-Hill Companies. It was incorporated on July 16, 2010, as a Delaware non-profit and is in the process of applying to the Internal Revenue Service for tax-exempt status as a 501(c)(3) organization. Additional information is available at http://www.mcgraw-hillresearchfoundation.org/.